How to effectively manage a tenant behind on rent

Real estate, Money

Your tenant isn’t paying the rent, and there are no signs that you’re going to get a rent check in the foreseeable future. Should you threaten eviction? Or is it easier and cheaper to offer your tenant the option to break the lease?

You may never get your rent money

Laws regarding tenants, landlords, and eviction vary by state and even by municipality. “There are also substantial differences between commercial and residential leases, with residential tenants afforded much more protection than business tenants,” says William S. Heyman, a Baltimore attorney practicing in real estate.

Eviction can be costly for a landlord. And it isn’t always a quick process, either. “Eviction and the threat of eviction if a tenant has defaulted can be a legitimate tool,” says Heyman, “but it is almost always better to allow the tenant to break the lease and reach a negotiated resolution. A tenant can fight eviction proceedings in court, and a negotiated solution is usually easiest and most financially prudent.”

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However, even if you manage to get your delinquent tenant to vacate your property, you have no guarantee you’ll ever get the back rent you’re owed. G. Brian Davis, real estate investor and co-founder of Spark Rental, explains that the outcome can be financially disappointing for landlords: “Landlords can get a money judgment after the eviction, but it’s impractical. It costs even more time and money, and it is impossible to actually collect from most tenants. Most states’ laws have become quite tenant-friendly, and it’s easier than ever for tenants to avoid paying their rent.”

Consider the mindset of your tenant

The threat of eviction isn’t necessarily enough to motivate a tenant who isn’t paying the rent. Yet other options may result in even more aggravation for the landlord. “Offering tenants the chance to break the lease and move out early isn’t particularly tempting to the kinds of tenants who don’t pay their rent,” says Davis. “Why move out today when it costs nothing to live in the home for the next four months and force the landlord to go through the entire eviction process?”

On the other hand, the threat of eviction could spur the tenant into action. “Tenants who are facing financial crises will go several months without paying rent if they can. Sending a Notice to Quit, however, which is the legal document that demands payment by a certain date before an eviction case will be filed, often triggers payment because people realize they are close to losing their home,” says Thomas J. Simeone, an attorney with Simeone & Miller, LLP in Washington, D.C.

The eviction of a tenant who doesn’t voluntarily pay back rent ultimately results in a judgment against the tenant—and that shows up in a background check. “A judgment is not only enforceable against the tenant’s assets, but will hinder the tenant’s ability to buy a home in the future and otherwise damage his or her credit,” says Simeone. “If the tenant has assets or is buying a home of their own (which is a common reason why tenants sometimes stop paying rent), then pursuing eviction is the better method of getting back rent.”

However, if your tenant really doesn’t have the funds to pay back rent, eviction isn’t going to get you the money you’re owed anyway, and it’s going to cost you legal and filing fees to go through the entire eviction process (plus, no one will be paying the rent). In such cases, breaking the lease makes more sense. “Allowing a tenant to break the lease can get the tenant out of the property so that it can be re-rented without the legal and filing expenses,” says Simeone.

Alternatives to eviction

If eviction is ultimately too time-consuming and expensive, what alternatives does a landlord have to get their property back in their possession without going further in the red? “Some landlords pay their tenants to move out immediately and skip the eviction process. The logic is that it costs less to pay them $500 to $1,000 now than it does to waste three to six months going through the entire eviction process and receiving no rent the entire time,” says Davis.

This option, however, doesn’t sit well with many landlords. “It rewards irresponsible behavior, and it leaves no record that the tenant doesn’t pay their rent,” says Davis. Consequently, the tenant’s next landlord has no paper trail to tell them that they’re dealing with a potential deadbeat.

If you do choose to pursue eviction, don’t attempt to do it without seeking professional legal counsel. “Hiring an attorney familiar with the law and the courts is well worth the $250 to $1,000 charged in my state,” says Bruce Ailion, an attorney in Georgia. “Even as an owner, property manager, and attorney, I hire professional assistance, and I usually prefer a settlement over eviction.” Ultimately, as a landlord dealing with a problem tenant, your best option is to select whichever path costs you the least and gets your property back to earning rent the most quickly.